When Moody’s Investors Service upgraded its debt ratings for Clear Channel Communications, it also noted that the company had only delayed an eventual financial restructuring. Now Moody’s analyst Neil Begley has reiterated that an eventual restructuring is inevitable.
“It is clear under our assumptions for operating improvement and valuation multiples that the company’s debt levels are unmanageable and unrefinancable,” the latest report from Moody’s stated.
The previous upgrade had been based on Clear Channel having successfully refinanced a $2.5 billion loan to its 79% owned subsidiary, Clear Channel Outdoor. That had pushed the day of reckoning for Clear Channel’s private equity owners, Bain Capital and Thomas H. Lee Partners, further down the road, but Begley had noted than that after 2013 the company would face a need to restructure its debt as a “mountain” of debt matures in 2016.
In his latest update, Begley said Bain and TH Lee might try to delay the inevitable as long as possible, but that Clear Channel would have to undergo a major restructuring by the time $13.8 billion of debt comes due in 2016. Before that, though, the company needs to figure out how to refi $3.7 billion of debt coming due in 2014, which it is unlikely to be able to do with cash on hand.
Moody’s noted, though, that Bain and TH Lee are likely to do everything possible to avoid a Chapter 11 bankruptcy filing by Clear Channel (whose parent company trades publicly as CC Media Holdings), since the private equity sponsors would likely see their entire equity wiped out and the company handed over to its creditors.
RBR-TVBR observation: This promises to be a long standoff between Clear Channel owners Bain and TH Lee and the vulture capital funds that are hoping to maneuver the company into Chapter 11 and make huge returns on the company debt which they snatched up at deep discounts. So far, though, Bain/TH Lee are winning. They got over the first big debt hurdle in 2009 and, with ad markets improving, have a couple of years of breathing room to plan out the next step. The vultures did not turn a fast profit, so they will now have to hunker down and see if they can still turn a slow profit.